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On July 28, 2006, the Army Sustainment Command (i.e., the Rock Island Arsenal) in Rock Island, Illinois (also known to we Quad City natives as Arsenal Island) posted a 44-page document on fbo.gov entitled “A Solicitation for Nonstandard Ammunition.” The order was similar to other orders on fbo.gov, in that it had blank spaces for name and telephone numbers and hundreds of spaces to be filled in. The document represented a semi-covert operation by the Bush Administration, which wasn’t at all sure that the 2008 presidential election would go Republican. The Bushies wanted to make sure that the Afghanistan rebels would have enough ammunition and weapons to keep fighting, no matter who was president, so they were going to go around Congress, as is often the custom, and prop up the Afghan National Army.

The order was a big one: enough to equip a small army. It included ammunition for Ak-47 assault rifles and SVD Dgarunov sniper rifles, GP 30 grenades, 82 mm Russian mortars, S-KO aviation rockets in enormous quantities. The contract would go to a single bidder as the wording read, “One firm fixed-price award, on an all-or-none basis, will be made as a result of this solicitation.” The money was only available for 2 years (which was the amount of time George W. Bush had left in office.) Unlike most federal contracts, there was no dollar limit posted.

These kinds of contracts are what the Pentagon calls a “pseudo case:” the intent was to go around Congress and allocate defense funds without the approval of Congress. The order would be published—but only on fbo.gov.

A couple of stoners located in Miami stumbled on the posting and soon were bidding $300 million (which turned out to be $50 million lower than the nearest competitor) for this enormous government contract. The two principals in the small firm known as AEY, David Packouz and Efraim Diveroli, had no business being in the running for such a large contract, but there were 3 reasons why they got it, anyway:

#1) The Bush administration had started a small business initiative at the Pentagon, requiring that a certain percentage of contracts awarded go to smaller businesses like AEY.

#2) Packouz and Diveroli specialized in exactly the sort of arms the ad was looking for. They had the “past performance” that the Pentagon would be looking for, and,

#3) The posting required only that the ammunition be “serviceable without qualification.”

What that last bit of mumbo-jumbo means is that quality of the ammunition was not an issue, indicating how ambivalent the Bush administration was towards the Afghan fighting. They’d supply them with arms and munitions, but, as Packouz and Diveroli put it, “The Pentagon didn’t care if we supplied shit ammo, as long as it went bang and out of the barrel.”

Thus began the long, strange journey that led Packouz and Diveroli to not only pose as international arms dealers (while smoking dope in South Beach), but also to prison. Diveroli to a 4-year-prison term and Packouz to turn state’s witness. Along the way, at least one of the players in this elaborate scam ended up dead under mysterious circumstances (Kosta Trebicka of Albania) and a small-time guy like Diveroli told his new partner (recruited from their mutual synagogue), “I’ve found the perfect contract for us. It’s enormous—far, far bigger than anything we’ve done before, but it’s right up our alley.”

The first task order was for $600,000 of grenades. It was important that the company of two come through on the initial order. As Diveroli put it to Packouz in the “Rolling Stone” article from which this information is taken (“Arms and the Dudes,” by Guy Lawson in the March 31, 2011 Rolling Stone issue), “You’ve got the bitch’s panties off, but you haven’t fucked her yet.” (p. 59).

The second task order was for $49 million in ammunition, including $100 million rounds of AK ammunition and over a million grenades for rocket launchers. Packouz calculated that he stood to make as much as $6 million on the contract—if the duo could deliver. The order allowed the two to live the high life at the Flamingo in Miami, telling the other attorneys and would-be models who lived there that they were arms dealers. The line was something along the lines of, “You know the war in Afghanistan? The bullets are all ours.”

Unfortunately, there were only the two of them. A task normally handled by teams of weapons experts was dumped in Packouz’ lap and he and Diveroli began contacting the Ukraine, Montenegro, the Czech Republic, Albania and attending events like the International Defense Exhibition in Abu Dhabi for suppliers. Rosboron Export, the official dealer for all Russian arms, sold more than 90% of Russian weapons, but Rosboron was banned by the State Department for selling nuclear equipment to Iran. There was also the problem of shipping the weapons…if they could be found…to Afghanistan. Turkmenistan, a former Soviet satellite, had to be crossed to get to Afghanistan, and permission could not be obtained. As Packouz put it, “It was clear that Putin was fucking with us directly. If the Russians made life difficult for us, they would get taken off the Russian blacklist, so they could get our business for themselves.” (p. 72, Guy Lawson’s Rolling Stone article “Arms and the Dudes.”

Every day, Packouz would send volleys of e-mails to Kabul and Kyrgyzstan and the Army Arsenal command in Rock Island, Illinois, set on an island in the middle of the Mississippi, once designated something like 7th to go in the event of a Russian nuclear attack. (Omaha with its SAC facilities always ranked high on the list, too).

The contracting officers told Packouz there was “a secret agenda.” Quote from the article, p. 72: “They said Bush and Rumsfeld were trying to arm Afghanistan with enough ammo to last them the next few decades. It made sense to me, but I didn’t really care. My main motivator was making money, just like it was for General Dynamics. Nobody goes into the arms business for altruistic purposes.”

The 9% profit margins that the newbies had decided might be high enough soon gave way to 25% mark-ups, leaving Packouz and Diveroli with $85 million in profits. The boys had delusions of grandeur, even moving into larger offices, rather than the modest apartment they originally operated from and bringing in 2 young secretaries courtesy of Craigslist, 2 more friends from their synagogue and a Russian interpreter to help them fulfill the contracts. Said Packouz of that time, “Things were rolling along. We were delivering on a consistent basis. We had suppliers in Hungary and Bulgaria and other countries. I had finally arranged all the overflight permits. We were cash positive.”

A few weeks after the contract was awarded to AEY, the fledgling arms dealers were summoned to a meeting with the purchasing officers at the Rock Island Arsenal. Because they were so young, the duo asked Ralph Merrill, the Utah Mormon gun manufacturer in his sixties who had bankrolled them, to go with them to the meeting. Diveroli was also able to show auditors a personal bank balance of $5.4 million.

As “Rolling Stone” describes the meeting on Arsenal Island on page 59: “The meeting with Army officials proved to be a formality. Diveroli had the contracting jargon down, and he sailed through the technical aspects of the transaction with confidence: supply sources, end-user certificates, AEY’s experience. Said Packouz afterwards, “I just think it never occurred to the Army people that they were dealing with a couple of dudes in their early twenties.” (p. 59, “Arms & the Dudes” in March 31, 3011 Rolling Stone magazine.)

Eventually, as one of the boys’ aunts had predicted all along, things went bust. The New York Times ran a front-page story in March of 2008 entitled “Supplier Under Scrutiny on Arms for Afghans.” As the eventual House Committee on Oversight and Government Reform concluded, “The AEY contract can be viewed as a case study in what is wrong with the procurement process.” (p.75). As the article concludes, “The Bush administration’s push to outsource its wars in Iraq and Afghanistan, in short, had sent companies like AEY into the world of illegal arms dealers, but when things turned nasty, the federal government reacted with righteous indignation.” The investigation than ultimately yielded a 4-year sentence (lengthened by a questionable lapse of judgment on Diveroli’s part in handling a machine gun when specifically banned from doing so), there was “a questionable need for the contract, a grossly inadequate assessment of AEY’s qualifications and poor execution and oversight of the contract.”
And it all happened at our local Rock Island Arsenal. Read the gorier details (and there are LOTS more, in the March 31, 2011 Rolling Stone magazine with Howard Stern on the cover.)